The incoming Labour-led government could open up opportunities for investors as ensuing market volatility and new policy directions take hold, according to Greg Fleming, AMP Capital NZ head of investment strategy.
In a note penned following the confirmed deal between Labour and NZ First to create a government of “change”, Fleming says investors will need to “re-examine some of their assumptions about domestic economic policy and direction”.
“In markets, uncertainty is usually rewarded with bouts of volatility, which spikes up and then gradually subsides as participants take on board the new reality and begin to re-position their portfolios,” he says. “Change allows investors both to take advantage of newly-revealed investment opportunities, and to limit the impact of latent risks.”
Fleming says “dark tone” adopted by NZ First leader, Winston Peters, in announcing the political marriage, fits within a wider global anti-establishment narrative epitomised by the likes of “Jeremy Corbyn’s rise in the UK, Emmanuel Macron’s in France, Donald Trump’s in the USA”.
Against that backdrop of “disenchantment” he says the Jacinda Ardern administration “may well experiment more profoundly with alternatives than some have expected”.
However, he says AMP Capital’s “cautiously positioned” portfolios are poised to take advantage of any knee-jerk market moves while staying attuned to longer-term structural changes.
In particular, the almost $20 billion fund manager has positioned for a “phase of weakness” in the NZ dollar while retaining a bias towards short-term NZ debt and credit, and overweight cash holdings in its diversified funds.
“If value emerges in domestic markets as the result of any bout of concern, and a sell-off in listed assets ensues, our relatively defensive positioning will allow us to re-establish active positions in assets which are broadly rather expensive at current levels,” Fleming says. “Long-term investment opportunities are often revealed only when an established system is disrupted and an imperfectly-understood alternative gets underway, and we are alert to ways of gaining exposure to any changes that will contribute to our investors’ long-term wealth building while keeping vulnerability to asset price risks in check.”
Likewise, the $3.5 billion Harbour Asset Management says the shape of the NZ government would “reinforce” the already-in-place investment themes set for the manager’s actively-managed portfolios, including:
- downside risks to the NZ dollar;
- globally-orientated stocks favoured over NZ-centric shares;
- short-term interest rates are anchored, with scope to fall further;
- long-term interest rates are prone to rise higher with global yields; and,
- inflation-indexed bonds provide cheap insurance against higher inflation.
At a broad level, the new government may result in “more fiscal spending, more government debt, higher inflation and higher long-term interest rates”.
“Particular sectors of the equity market may also suffer, such as higher wage costs affecting the retail sector and weaker property prices potentially affecting the retirement village sector, despite the demographic changes that support long-term demand,” Harbour says.
In a release, Financial Services Council (FSC) chief, Richard Klipin, said the election result signaled a “strong message” for change “and for us to do better us a country”.
Klipin said the new government should focus on KiwiSaver to help address the growing wealth gap in NZ.
The government needs to take “action on savings and taking concrete steps to beefing up KiwiSaver so that all New Zealanders can benefit from it”, he said in the statement.
“The last Labour Government showed great leadership in establishing KiwiSaver and we look forward to this new administration carrying on that legacy,” Klipin said.